Chairman Michael A. Khouri’s Remarks for the Global Maritime Conference
I am pleased to be with you today. My thanks to the Global Maritime Conference for the invitation. Today’s remarks reflect my own views. They are not offered as the official positions of the United States or the Federal Maritime Commission.
Briefly, for those not familiar with the FMC, it is the U.S. agency responsible for economic regulation of ocean borne transportation in foreign commerce.
Congress charged the FMC with responsibility to ensure competitive and efficient ocean transportation services for the shipping public and to protect the public from unfair and deceptive practices. The Commission motto is Competition and Integrity for America’s Ocean Supply Chain.
The Commission oversees an industry that is vital to the American economy. Containerized ocean cargo moving in the United States import and export trades represents over one-quarter of all U.S. import and export goods.
The U.S. Congress established the Commission over 100 years ago. Through many changes and evolutions in ocean shipping over that time and updating of the foundation Shipping Act, it remains an important tool to ensure competition in the international liner trade serving the U.S. economy.
The modern Shipping Act allows competing vessel operators to enter into joint cooperative association agreements to discuss commercial issues in a manner that could be a problem or prohibited to many businesses under the antitrust laws. These agreements may include discussion of freight rates, provided there is no mechanism to require adherence to any discussed rates. Participants of such rate discussion agreement may not also participate in an agreement concerning capacity deployments on the same trade lane. For that reason, virtually all rate discussion agreements have been cancelled.
As suggested, carriers may enter into joint operations agreements – some as simple as agreement to swap a fixed number of container slots on each other’s vessels to the highly structured joint operations we now see with the top ten carriers aligned in three alliances that serve the Asia – U.S. and Europe – U.S. trades. Marine terminal operators may also obtain authority for joint discussion and joint operations.
Agreements must be filed with the Commission for review under the Shipping Act’s competition standard that provides that the operation of the agreement may not substantially reduce competition with a resulting significant increase in transportation costs or significant decrease in transportation services. In making this competition decision, the Commission reviews each agreement on a trade-by-trade basis and using the relevant markets. The FMC task is to determine whether the agreement member ocean liners are and will continue to compete on both price and service parameters.
The FMC has monitoring responsibility for the 300 plus agreements currently on file and in operation. However, as you would expect, the three major global carrier alliances have the top priority and receive the highest ongoing monitoring scrutiny. These global carrier agreements have the greatest potential to cause or facilitate adverse market effects based on the agreement’s authority and scope in combination with underlying market conditions.
Regarding Rate and Capacity Issues
In recent years, regular cargo volumes and shipping patterns have been altered in response to changes in international trade agreements and tariffs. Then came COVID-19’s impacts on trade, including disruptions to production and changes in consumer demand. Both contributed to short term volatility in cargo volumes.
Some ocean carriers participating in agreements filed with the FMC responded to these challenges by reducing carrying capacity through cancelled or “blanked” sailings to adjust available capacity to coordinate with the lower demand. Such actions are permitted under the Shipping Act so long as the joint actions do not violate the Shipping Act competition standard.
These changes have heightened FMC scrutiny of capacity reductions by global alliances. To ensure timely information, the FMC generally requires notice to be submitted before “blanked sailings” are implemented and no later than fifteen days after any such change is agreed upon. We also receive notice of the reinstatement of future blanked sailings.
The FMC is receiving notices of some reinstatements of blanked sailings in both the trans–Pacific and trans-Atlantic trade lanes. Most recently, some carriers are again cancelling some sailings. Our economic bureau staff determined that given these fluctuations in the markets, they needed to receive key trade data directly from alliance carriers on a more frequent basis so the staff economists could timely evaluate capacity and rate changes in the transpacific and transatlantic trades and report findings to the Commission.
On November 25, with my direction, the Commission issued letters to the three global carrier alliances that now requires certain carrier-specific trade data, formerly filed quarterly, must now be submitted on a monthly basis.
If we detect any indication of carrier behavior that may violate the competition standard, we will immediately seek to address these concerns with direct carrier discussions. If necessary, the FMC will go to federal court and seek to enjoin further operation of the offending alliance agreement.
Concerning Covid Issues
Like everyone, the Commission has been grappling with the challenges presented by COVID-19. I am pleased that, due to advance planning and preparation, the FMC has remained fully open and operational throughout these difficult times. Every bureau and office of the Commission is fully engaged and available virtually, and by email or telephone.
On Stakeholder Engagement
An important role for the Commission is to bring different stakeholders in the ocean supply chain together to address problems proactively and to collaborate as they pursue non-regulatory solutions. This role continues to be robust, even in the current environment.
Commissioner Rebecca Dye is using this collaborative approach to address supply chain issues and freight fluidity in Fact Finding 29 on “International Ocean Transportation Supply Chain Engagement.” Fact Finding Teams have been at work in Los Angeles and Long Beach, New York/New Jersey, and in New Orleans.
This team approach was used in the earlier Fact Finding 28, which resulted from an industry stakeholder petition requesting relief from practices of ocean carriers and marine terminal operators concerning detention and demurrage charges.
Commissioner Dye engaged a large number of diverse stakeholders to provide feedback that served as the basis for a new interpretive rule to address how the FMC will interpret “unreasonable practices” in complaint cases brought under the Shipping Act. The rule recognizes the role of detention and demurrage charges in stimulating prompt cargo movement and productive use of assets and applies an “incentive principle” in general terms. The rule’s application will vary depending on the facts and context in any particular case.
The FMC has been watching closely to determine if the interpretive rule is having the intended effect to incentivize the movement of cargo and promote freight fluidity.
While some early evidence indicated that marine terminals and ocean carriers were reducing or even canceling charges in certain fact situations, we continue to hear increasing serious concerns and creditable complaints from shippers and other stakeholders, such as port trucker groups about how the ocean carriers, ports, and terminals are assessing unfair detention and demurrage charges. They also have raised complaints concerning chassis equipment issues.
The Commission has a responsibility to investigate serious impediments to performance in our major port gateways. Therefore, on November 20, the Commission approved a Supplemental Order to expand Fact Finding 29 to investigate ocean carriers operating in alliances and calling at the Port of Long Beach, the Port of Los Angeles, and the Port of New York and New Jersey to determine if policies and practices related to detention and demurrage, container return, and container availability for U.S. export cargoes are violating the Shipping Act.
On to Bills of Lading and the Merchant Clause
Stakeholders have raised concerns about certain billing practices of ocean carriers where they have expansively defined the term “merchant” in their bills of lading. The broad definition holds companies responsible for ancillary transportation charges that they did not contract for and may not legally be required to pay. Such non-party entities may include freight forwarders and customs brokers.
In response, in October, the Commission issued a Notice of Inquiry and the Commission’s Bureau of Enforcement is conducting an investigation.
On Contract Filing
During the COVID pandemic, the Commission has devoted considerable effort to reducing regulatory burdens that add unnecessary time and costs for stakeholders and reduce freight fluidity.
Current Commission regulations require the physical filing of initial service contracts before an ocean carrier is permitted to receive and move cargo under the terms of that contract.
Earlier this year, in response to COVID disruptions in the ocean container supply chain, the Commission approved a temporary reform to service contract filing by allowing ocean carriers to file their service contracts within 30 days of the agreement’s effective date. We are now voting on a proposed new rule to make that temporary regulatory relief permanent. More news next week.
Looking out to 2021, I look for the Commission to continue its focus on opportunities to relax regulatory burdens in the ocean container transportation space that unnecessarily add costs and reduce freight fluidity. We will continue to look for opportunities to utilize collaborative cross-discipline teams to facilitate cooperative solutions to bottlenecks and friction points in the supply chain.
A significant recent development needs mention. Some ocean carriers – not all – have stated that they will no longer deploy – that is – reposition empty containers to the U.S interior agricultural areas. Instead, they are expediting empties back to Asia. This abandonment of a significant U.S. export industry – the American agricultural industry – is shutting them out of global markets. We are looking into all potential – I repeat – all potential responsive actions, including a review of whether such ocean carriers’ actions are in full compliance with the Shipping Act and more specifically the various “Prohibited Acts” sections of the Act.
And last – we will continuously pursue our goal of ensuring competition and integrity in America’s ocean supply chain.
Thank you for the opportunity to meet with you today and share some of my thoughts. I look forward to your questions.